Major economies around the world, the US, Europe, Japan, and China
all had a very steady and solid second quarter performance this
year adding fuel to global economic recovery. As the growing demand
continues, production and supply value chain will also operate as
usual. Heated up by strong growth in exports, the Taiwan Institute
of Economic Research (TIER) issued manufacturing composite indicator
increases for the second month consecutively. Insurance and wholesale
sectors were both optimistic in July, whereas the other sectors
viewed the near future more neutral giving TIER's service composite
indicator a slight drop after 4- monthly consecutive mount. Finally,
the construction composite indicator also rises thanks to expanding
scales and the due completion effect of public construction projects
with respect to the government's stimulus packages.
Taiwan's exports in July 2017 increased by 12.51% compared with
the same month of 2016 that would be the second month of double
digit growth in exports. Regarding imports, Taiwan's imports in
July 2017 increased by 6.49% compared with imports in July 2016.
Exports and imports grew by 12.52% and 14.93% y-o-y respectively
from January 1st till the end of July this year, Taiwan's exports
and imports gave a trade surplus of US$ 28.19 billion or an increase
by 1.45% on a y-o-y basis during this period.
Taiwan's consumer price index (CPI) went up by 0.77% in July 2017
compared with the same month of previous year. The current inflation
rate has gradually moved back down compared with previous months.
The core inflation rate stood at a relatively higher ratio as 0.92%
in July, 2017. In addition, the wholesale price index (WPI) decreased
by 0.73% in July 2017 on the year-on-year basis. The decrease in
WPI subsides due to a tepid rebound of crude prices and not as strong
as earlier NTD.
As for exchange rate, the NTD went somewhat stronger due to the
relatively stronger USD, as the Fed has sent out certain dovish
messages. The USD/NTD stood at 30.227 in late July 2017 indicating
a 0.69% appreciation. However, the attention must be also paid to
the Fed's future rate hike in addition to its intention to unwind
the US$ 4.5 trillion balance sheet in the near future. Regarding
the interest rate, it remained low and steady in July 2017 due to
the continued loose monetary operations by the CBC with respect
to the most recent CPI reading.

Business Outlook

The portion of manufacturing firms who perceived business were
better than expected in the target month was 26.7% or decreased
by 7.2% compared with respondents who perceiving better business
in the previous month. The portion of those perceived business were
getting worse in the target month was 31.1% or increased by 6.8
percentage points than 24.3% perceiving worse business of the previous
month. The portion of manufacturing firms who perceived business
remained constant in the target month was 42.2% or increased by
0.4 percentage points compared with 41.8% perceiving constant business
in the previous month. Overall, manufacturing firms perceived the
business in the target month was rather pessimistic.
In addition, the portion of manufacturers who perceived business
would be better in the next six months was 30.3% in the target month
or decreased by 5.2 percentage points than 35.5% feeling more optimistic
about the future in the previous month. The portion of firms who
perceived the economic outlook would be worsening was 11.7% or decreased
by 7.7 percentage points compared with 19.4% feeling rather pessimistic
about the future in the previous month. The portion of manufacturing
firms who perceived business remained constant in the next six months
stood at 58.0% or increased by 12.9 percentage points compared with
45.1% feeling neutral about the business outlook one month earlier.
Overall, manufacturing firms perceived the business in the near
future was somewhat neutral.
The manufacturing composite indicator for July, 2017 adjusted for
seasonal factors on moving average, saw an upward correction, and
from a revision of as 96.58 points in June moved up to 100.52 points
in July that would be the second month consecutive increase. Figure
1 shows an increase of 3.94 points.
The TIER service sector composite indicator for July 2017 adjusted
for seasonal factors on moving average, saw a downward correlation,
and from a revision of as 95.51 points in June moved down to 95.02
points in July that would be the first decline after 4-month consecutive
increase. Figure 1 shows a drop of 0.49 points.
In addition, the TIER Construction Sector Composite Indicator for
July 2017 adjusted for seasonal factors on moving average also saw
an upward correction, and from a revision of 90.37 points in June
went up to 96.75 points in July. Figure 1 shows an increase of 6.38
points.

Forecast on Individual Industries

Following are manufacturers' sentiments that are industry-specific
in the monthly TIER surveys:

● Manufacturers' sentiments that have been in decline in the July
survey and are expected to deteriorate over the next six months
include:
Plastic Products Manufacturing.

● Manufacturers' sentiments that have been in decline in the July
survey, but are expected to improve over the next six months include:
None.

● Manufacturers surveyed who felt the July outlook was the same
as the previous month, but the outlook is expected to exacerbate
over the next six months include:
Porcelain and Ceramic Products Manufacturing, Audio and Video Electronic
Products Manufacturing.

● Manufacturers surveyed who felt the July outlook was the same
as the previous month, but the outlook is expected to improve over
the next six months include:
Plastics and rubber raw materials, Glass and Glass Products Manufacturing,
Electronic Machinery, Data Storage Media Units Manufacturing and
Reproducing, Bicycles Parts Manufacturing.

● Manufacturers' sentiments that have improved in the July survey
and is expected to deteriorate over the next six months include:
Petroleum and Coal Products Manufacturing, Bicycles Manufacturing.

● Manufacturers' sentiments that have improved in the July survey
and is expected to remain upbeat over the next six months include:
Soft Drink Manufacturing, Paper Manufacturing, Machinery and Equipment
Manufacturing and Repairing, Cutlery and tools Manufacturing, Industrial
Machinery, Electronic Parts and Components Manufacturing, Precision
Instruments Manufacturing, Insurance, Transportation and storage.

● Manufacturers' sentiments that have improved in the July survey
and the trend is expected to continue for the next six months include:
Electric Wires and Cables Manufacturing, Electrical Appliances and
Housewares Manufacturing, Education and Entertainment Articles Manufacturing,
Securities.